Information and communications technology group Mustek aims to take advantage of businesses upgrading their systems and growing interest in artificial intelligence (AI) to spur its growth in the coming financial year.
The group’s share price surged on Tuesday morning to its highest level in more than six weeks after profit grew despite the cost of its borrowing more than doubling due to several interest rate hikes.
By 10.48am, the price had leapt 10.73% to R16, the highest since August 4, after the company, valued at about R900m on the JSE, posted results for the year to end-June. By market close, the share had gained the most in a day in more than three years, up 8.93% to R15.74.
To keep pace with the performance it reported on Tuesday, the group expects upcoming cycles in which businesses update equipment will provide a big opportunity.
“The potential lies within the expanded installed base, which has grown since prepandemic times. While an immediate overhaul of systems acquired during the Covid-19 period is desirable, a significant portion of the installations from 2019 are also due for an upgrade,” the company said.
In addition, it sees the growing interest in AI as another area to grow earnings as investment in the new technology accelerates.
AI investment, or at least its visibility, has grown hugely in 2023, driven by the rapid adoption and popularity of OpenAI’s ChatGPT, which launched in November 2022.
ChatGPT is a chatbot underpinned by a large language model, produced by AI nonprofit OpenAI. It is capable of generating human-like text and has a range of applications including translation.
“The emergence of generative AI is fostering a demand for intelligence at the edge. Businesses are realising that to remain competitive, integrating AI into all aspects of their operations is imperative. The group recognises the significance of embracing these technological advancements and aims to be at the forefront of the evolving landscape.”
Players across the sector, including Telkom’s BCX, Cartrack owner Karooooo and technology investor Naspers, have all revealed strategies about AI.
Mustek did not say how much it hopes to make from the tech.
Despite the cost of borrowing biting into profit, Mustek reported headline earnings per share (Heps), a common profit measure in SA that excludes certain items, rose 5% year on year to 375.2c and operating profit, generated from core operations, jumped 11.7% to R454.8m.
“The results were negatively affected by aspects mainly outside our control. This included severe exchange rate fluctuations, which led to increased forex losses and a significant increase in interest rates, which led to higher finance costs,” Mustek said as finance costs, which includes interest and other costs of borrowing, ballooned 127.4% to R174.5m.
The Reserve Bank and other central banks have tried to tame high inflation by raising interest rates after lowering it during the Covid-19 pandemic to stimulate spending when many economies slowed.
“Average SA prime interest rates were 40% higher in this financial year. The average borrowing rate applicable to the group’s dollar-based borrowings increased from 3.2% in the 2022 financial year to 8.2%,” it said.
Mustek is an assembler and distributor of ICT products that was established in 1987 and listed on the JSE in 1997. Most of its revenue (98.6%) is generated from selling hardware and its brand portfolio includes Acer, Asus, Samsung and Lenovo.
Revenue was up 13.7% to R10.1bn.
The company said in its annual results last year that it would continue to benefit from the digital transformation kick-started by the pandemic as more people worked from home and online with the help of technology.
“Our investment in new product lines such as cloud and cybersecurity solutions, networking equipment and sustainable energy have contributed meaningfully to revenue and profit,” the company said.
“The group continues to carefully evaluate opportunities to add additional products to its offering to better use infrastructure and benefit from economies of scale,” it said.
It declared a dividend of 77c, up 1.3% from previously.
Updated: September 19 2023
This article has been updated with additional information
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